Best of the Bond Market for March 13th, 2012
A High Point for High Yield – Our Take: While the article does stay true to its title in making the argument that high yield returns may be reaching their peak, it also makes what we feel is the more important argument that high yield spreads over treasuries are still very attractive, and no where near historical lows. A bond’s spread over treasuries represents how much a particular bond or group of bonds yields over a treasury bond of similar maturity. The article states that “Junk bonds now trade at 611 basis points—6.11 percentage points—over Treasuries with similar maturities”. The point here being that if you are a long term investor that is more concerned about earning yield than capital appreciation of a bond, then there is still a lot of juice here. More on junk bond valuations here and here.
Tweet and Article by @andrewhorowitz
Fed Statement – Side by Side Comparison – Our Take: The FOMC concluded its 8 regularly scheduled policy meetings and released its statement giving their current view on the economic situation and interest rate policy. Any small change in the language of the report is often seen as a signal to the market and Andrew’s highlighting shows that if anything the Fed’s outlook has improved since their last meeting. As a result there was no mention of further bond buying or “QE3” and yields on long US Government debt increased to their highest levels since October as a result.
California’s Greek Tragedy – Our Take: Earlier this week it was Puerto Rico that was getting the Greece comparison and today it Michael Boskin and John Cogan making the California connection. This line from the article says it all: “From the mid-1980s to 2005, California’s population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000″.
Here is a good overview of how all this relates to those invested in or looking at investing in California Muni Bonds.